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Smule

Product Development Process And Analysis of Magic Piano Application GSB+3 Brad Bonney, Austin Deyan, James Nelson, Jonathan Poto March 13, 2013

I. Executive Summary Smule is the market leader in disruptive "music entertainment" mobile application products

within the rapidly growing smartphone application market. Smules mission is to increase accessibility, expressivity, and social interactiveness in music content creation. Smules most successful product to date is the Magic Piano application, which enables users to experience the creation of popular music, earn achievements, and share their performances on a global platform. Smule is in the midst of expanding from solely a disruptive, innovation-based model to a model that incorporates creating derivative products of proven successful applications. Using Magic Piano as a case study, this report examines the evolution of value creation at Smule as well as the process changes required to successfully incorporate a farming business model into its existing structure. II. Description of the Field Study Project Broad Description/Scope This report analyzes Smule's PDCP process to understand how Smule works to meet its mission and underlying business objectives. The report also examines the evolution of the value creation model for the Magic Piano application, comparing this to Smules general business and PDCP model. Objectives 1) To provide background on the general smartphone app industry, the music gaming app market, and the evolution of Smules value creation model; 2) To analyze Smule's PDCP, from market research and R&D through product release; 3) To provide a background of the product of focus, including its market, technical capabilities, and product team structure; and 4) To examine the evolution of the value creation model for the Magic Piano product line.

Focus Area and Why It Was Chosen This report examines the expansion of capabilities of the Magic Piano line through the lens of Smules evolving value creation model. The Magic Piano line of applications is quintessential to Smule's family of music creation and social experience apps. Magic Piano parallels the more general evolution of Smules value creation model and overall product development process.

III. Background Info The Industry Smule develops music based game applications for the iOS and Android ecosystems. Created in

2008, these App ecosystems are rapidly expanding. Estimates place the iOS market at $4 billion in revenue for 2012. Apps downloaded via Apple iTunes are increasing linearly at a rate of 12.5 million downloads per day year-over-year, with 50 million downloads in 2012. Exhibit 1 shows 2012 iOS and Android purchases per download normalized to January 2012. Revenues for 2012 (for application and In-App purchases) were estimated at $300M for January 2012, growing to $333M by October 2012.1 Market Characteristics Smule sits at the intersection of touch-based interactive games and music creation, seeking to disrupt the way the average consumer understands and interacts with music. Smule is a powerful niche player in the $65 billion Music Entertainment industry. Since its 2011 acquisition of its primary competitor Khush, Smule has amassed more than 65 million application downloads and its users have performed over 350 million unique songs,2 a previously unseen level of music creation and sharing. With the advent of mobile and the explosion of social media, content generation and sharing

markets have nearly limitless potential. As the smartphone app markets has become saturated, publishers like Smule are able to leverage their existing user base to market products to mass audiences. CEO Jeff Smith explains, I can point 250,000 eyes onto a new product within three days, at almost no cost. This easy distribution with little monetary expenditure affords significant ability to test and iterate with an actual customer base. Another driver of customer accessibility is the growth of the Freemium model to the application ecosystem. Implementation of an in-app marketplace on the iOS platform has caused companies to shift towards providing products at no upfront cost, further expanding product accessibility. Monetization models (and hence product development) depend on increasing user stickiness, product virility, the availability of premium content, and the likelihood of customers purchasing that premium content. According to Smith it

1 http://www.guardian.co.uk/technology/appsblog/2012/dec/04/ios-android-revenues-downloads-country 2 http://www.smule.com/presreleases 2

took only 18 months for freemium apps to overtake paid apps as the top grossing apps on iTunes. Company History Jeff Smith and co-founder Ge Wang created Smule in 2008. Ge Wang invented ChucK, a music processing language as part of his Princeton dissertation with the goal to create a language that is expressive and easy to write and read with respect to time a parallelism, and to provide a platform for previse audio synthesis/analysis and rapid experimentation in computer music.3 He approached Smith with the intention of leveraging the iOS platform and iPhone technology to commercialize these tools. Smith utilized his experience in technology startups, creating a culture based on product testing, data evaluation, and iterative design. Together, they built a company of 70+ individuals and launched over a dozen top-ten grossing music applications for iOS and Android mobile devices. IV. Company's Product Development and Commercialization Process Smules production development structure fluctuates between autonomous and lightweight

development teams (Exhibit 2). The project manager has the strongest connection with the engineering group given its role in product release. Design teams consist of four to five members with specialties such as User Interface (UI), User Experience (UX), and visual artists. Marketing and finance teams are mostly removed from initial processes. Advantages of this approach include faster development cycles due to fewer PM constraints, comprehensive system solutions that dont resort to incremental add-ons, and a lower overhead on centralized marketing and finance. One major disadvantage of relying heavily on nearly autonomous teams of engineers recruiting and retaining talented members. Additionally with the loosely knit structure, teams and individuals are more likely to underperform with respect to timelines and benchmarks. Smules PMs tend to be more concerned with engineering, while other divisions (i.e. finance and marketing) report directly to management. Fortunately this structure allows projects to maintain a course and direction desired by management with strict stop-gate processes in place to delineate phases and prerequisites for project progression. The PDCP is clearly defined at Smule. Phase 0, idea generation, gives all Smule employees the

opportunity to pitch ideas (in theory). The team conducts very limited exploratory market research, a

3 https://ccrma.stanford.edu/~ge/thesis.html

weakness as they work to incorporate derivative products into their overall portfolio. Instead Smule relies on a few key innovators to generate product ideas. Four metrics are used for evaluating products: 1) user location, 2) daily activity-push to Facebook, Twitter, and email, 3) sales per daily active user, and 4) daily user activity. Popularity is sometimes gauged through response to teaser product trailers posted online via YouTube. Management Green Lights project proposals to proceed to Phase 1. Phase 1 involves rapid prototyping. An imposed thirty-day requirement insures progress towards

a working prototype. In-house developers and company management test the prototype, and management decides whether the project moves forward, has another 30 days, or gets canceled. Phase 2 applies to Continuous Improvement Projects (CIPs). Adding to an existing product poses

risks due to the inability to accurately gauge user responses to new product features. Improvements directly tailored to user needs is limited by the absence of user needs research. Phase 3 involves Alpha testing. A project budget and final product rollout timeline are approved.

Budgets range from $50K to $2M depending on size and scope. Development lengths can be as short as two weeks and as long as six months. Products with a development cycle longer than six months are usually canceled. As the development cycle draws to an end, Smule releases a teaser video on YouTube highlighting the final product to generate demand. Videos must be no longer than 30 seconds in length and accurately convey the products value. Phase 4, or Beta testing, is accomplished by releasing the product under a pseudonym that

protects Smule from negative feedback. The team immediately begins analyzing data (NT and K- factor) to track usage patterns, virality, and feature adoption of the product post launch. Responses are evaluated and minor changes are made before launching globally under Smules

name brand. See Exhibit 3 for related time-to-market and stopgap process breakdown. V. Description of the product and the state of its development Target Market The Magic Piano app targets smartphone owners of all ages and gender groups, although the product is most success among teenagers and young adults (13-30 years old). The product harnesses

the universality of the piano as an instrument of expression and music creation, the playing of which the users are familiar with. The majority of the 500+ songs featured in the library are either piano classics or popular songs from various genres, most identifiable with the under-30 year old crowd. Technical description Magic Pianos user value centers around two components: an achievement based Play mode, and a global music sharing World platform. Core value exists in gameplay mechanics allowing a player with zero piano experience to enjoy feeling control and mastery over a real-time song recreation. Colored orbs are displayed on the screen. The orbs are horizontally spaced to correspond to relative distances of those notes within their respective chord formations, and vertically spaced according to the tempo of the song. When the player taps the screen on an orb or chord of orbs, sound emanates from the device in real time giving the player to control over the rhythm of the song (but not the actual notes being played). Users receive real-time feedback through a scoring system based on timing and tap location (proper notes and chords). Achievements accrued through scoring in the Play mode encourages the user to practice, buy, and play a greater number of songs. Value to the user is augmented through a low-pressure freemium model; free content and premium content (popular songs to play) can be earned (by watching ads or completing affiliate offers) or purchased depending on the users desire to spend. VI. Discussion of the area of Focus Exhibits 4 and 5 shows Smules value creation model as applied to the Magic Piano product. Since

its initial launch in 2010, the app has evolved with respect to timing, environmental factors, technological factors, and value contribution. In the first version of Magic Piano (released in April 2010 for the iPad), there were only five songs to play. Smule created value by utilizing the inherent capabilities of the iPads large screen, multi-touch display, and fast processing. In comparison to the general Smule value creation evolution, this stage was remarkably different because the app was launched on a non-iPhone platform. Smule was given exclusive access to the iPad tablet prior to product release and leveraged this knowledge to create an application that catered to the tablet market. By May 2011, Smule had already upgraded the Magic Piano product, marking the second

stage of the evolution. Such changes included making the app free, creating a scoring system for each song, and implementing premium content that could be purchased using virtual Smoola. The underlying value creation proposition was to increase the user base by making the app free and adding popular songs (and premium content for purchase) to increase user enjoyment. Magic Pianos evolution differed from Smules other products in that users had the ability to earn Smoola by using the app, not simply buying it. This showed a marked improvement in user retention. The next versions of Magic Piano added an interactive leaderboard and expanded to the Android marketplace. The socially competitive nature of the leaderboard combined with the subsequent expansion to Android created an explosion in both user adoption and sustained interaction while creating a product that still achieved Smules central mission. The most recent version (released in February 2013), continues to tactic of introducing unlockable achievements and premium content, such as releasing a new free song every day, to maintain its existing user base. This creates a sustainable way for a non-paying user to gain new content through regular gameplay. Adding free content increases the products value to consumers while simultaneously growing the user base. VII. Problems and Opportunities for Improvement Statement of the challenge Smule experienced rapid growth in value creation for their initial products including Magic Piano. However, as innovations become harder as the marketplace matures, competition increases, and customers become more discerning, it grows more difficult to consistently provide increasing value. While Smule has combated these challenges by more effectively monetizing their existing products, it must adapt its future product design processes to more efficiently address user needs and wants. As users understand the features and capabilities of their mobile devices, Smule must be reticent to that fact in order to drive new customer sales and increase the long-term appeal (stickiness) of products. Top-level challenges for the Magic Piano and new applications include improving: (1) the virality

of the product (k-factor: Number of recommendations per user to contacts times proportion of referred people who buy the product.), (2) the stickiness of the product, and (3) sales conversions for user. By surveying actual Magic Piano app users, these objects appears accomplishable through high-

level product improvements in ease of learning game mechanics, expressivity of gameplay, clarity of pricing, availability and access to premium content, depth of social experience, and use as a music making/recording tool. Exhibit 6 lists enhancements desired by these current Magic Piano users. Requirements All production process or Magic Piano solutions must allow Smule to maximize creativity within the bounds of profit-motivated decision-making. Smule must also maintain a balanced product portfolio with revenue from sustaining products offsetting high-risk and high-cost breakthrough next- generation products. Finally, products development must continue within a reasonable budget and project timeline given the financial health and size of Smule. Constraints Smules production process is constrained by needs of the product design and management teams, and the availability of engineering talent. Magic Piano design is constrained by technological platform development, current and potential user expectations, and project portfolio and financial concerns. Alternatives PDCP Process and Team Structure on Multi-Generation Products 1) Create a rigorous brainstorming Phase 0 process to discover new sources of product value. 2) Shift to heavyweight development teams to increase the total engineering talent pool.

Recommendations Ways to implement process alternatives within Smules constraints 1) Identifying new product value is important given the large numbers of major design improvements determined through a general market print (Exhibit 6) and Kano Analysis (Exhibit 7). The slowing growth of perceived product value (with no significantly new product features since the introduction of Smoola as a way to purchase premium content) must be combated. While the current hypothesize test gather data iterate model process is effective at improving efficiency and clarity of existing functionality, a more expansive model will overcome roadblocks in creativity (Exhibit 8). By sending engineers to conduct personal interviews with users in target market demographics, Smule will be able to more accurately refine product ideas in the hypothesize phase by discovering what current users desire. Smule will be able to match the product directly to user needs and wants as they work to expand their new derivate product offerings.

2) Given the need for creative, system-wide solutions for implementing new value-adding

features, Smule should not abandon its lightweight team structure. Rather, Smule should identify low-difficulty functionality improvements, and assign those projects to a separate team of engineers who remain within their functional group. The ability to assign multiple low-difficulty projects to a dedicated team with the resources of a function group will lower the talent threshold required to be an engineer at Smule, and will improve overall company efficiency. VIII. Conclusion Smules current product development process is undergoing a transition. As it converts from a

purely innovative company to a company that also builds upon successful ideas through derivative products, it must not overlook the necessity of market research in early stages of its idea generation. While previously content with throwing ideas against the wall and seeing what sticks,4 Smule must interface with users to understand their desires. Mobile devices are no longer new and misunderstood. Their features and capabilities are known, and there are many competitors in every market space. As the user landscape shifts, so too must to product development process. For derivative or parallel products with incremental innovation, it is imperative to match the new value- add to customers needs and wants. Smule was a groundbreaking innovator. In order to remain as competitive in its new approach of farming existing winners for future success, it must adapt its product development processes to include more pre-launch market and user needs research.


4 From an interview with Jeff Smith, CEO of Smule

Exhibit 1: App Download Trends


source: http://www.guardian.co.uk/technology/appsblog/2012/dec/04/ios-android-revenues-downloads-country

Exhibit 2: Current Lightweight-Autonomous Team and Proposed Heavyweight Structure for Low Design Challenge Products and Product Features Current Product Development Team

Proposed Team Structure for Low Design Challenge Products and Product Features

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Exhibit 3: Smules Time-To-Market and Stop Gap Green-Light Process

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Exhibit 4: Evolution of Smules Value Creation Model

Exhibit 5: Evolution of Magic Pianos Value Creation Model

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EXHIBIT 6: Kano Analysis of Current and Potential Product Features

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Appendix to Exhibit 6 **Explanation of Value of Product Feature

(1 and 2) Smule should incorporate both an Accurate Touch mode (app will play a note based on position of touch, not just a preset tone), as well as a Visual Piano option that shows a dynamically changing piano superimposed behind the note orbs. This will increase the realism of gameplay and the value as a piano learning tool, without compromising gameplay ease-of-use. (3 and 4) While uploadable content would be the ultimate way to address low content availability, it is technically challenging to create a music analysis and score writing algorithm that could create arrangements equally as engaging as those made in Smules lab. Furthermore, this could cannibalize sales of premium content. Smule could still increase the amount of desired content available by targeting current popular songs to add to the library. Currently only 2 of the top 10 ten singles of 2012 are on the Magic Piano. (5, 6, and 7) The seemingly random denominations of Smoola tend to confuse users. Change the pricing of songs to multiples of 25 Smoola, while selling Smoola packages in multiples of 100, for easy off-hand conversions of song prices. By limiting the number of packages, the buyers decision-making process is simpler. Subscription services or direct song purchase should be considered to make purchase costs of songs 100% transparent. 8) The Tapjoy affiliate interface (1) appears to be a nickel-and-dime approach to achieving revenue, lowering the perceived value of the product and the premium content that is earned and (2) results in a distracting program exit (right), reducing enjoyment. This should be removed to focus the user experience on gameplay and premium content purchases. (9) Smule should implement an algorithm to break up current song scores and allow users to play duets either live or on delay (one person records their half then uploads it). Duet mode was available in version 1 and would increase interactivity of the social experience. (10) Smules mission is to enable music creation on a social platform. Creating a means of improvising with someone around the globe would maximize the achievement of both these value propositions. (11) Freestyle could be enhanced for small screen mobile devices. Small screen size makes it difficult to either touch the desired keys on the smaller keys of keyboard. Provide the user with the ability to select major and minor keys, to choose different types of scales, and to use specific gestures to produce major, minor, or sustained chords. This will allow the user to create a truly musical and song-like experience. This will add value at no cost. (12) Users desire the ability to record their music. Allowing them to perform multiple overlaid tracks on Magic Piano and export that as a layered music file or a compressed mp3 will make Magic Piano useful as a professional music creation tool, rather than simply an instrument representation.

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EXHIBIT 7: Smule Current vs. Potential Next Generations Market Print


Red = Magic Piano Version 5 Blue = Magic Piano Proposed Version 6 Black = M agic Piano Proposed Version 7

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EXHIBIT 8: Smules Current PDCP Process and Necessary Improvements

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